What is an affiliated company?

Currently, affiliated companies are quite a popular and popular business model today because of the capital efficiency it brings. So what is an affiliated company? What are its characteristics compared to other types of companies?

What is an affiliated company?

 The Enterprise Law 2020  in effect does not have provisions directly regulating affiliated companies. However, the concept of affiliated companies is mentioned in Clause 2, Article 1 of the Model Charter attached to Decree 19/2014/ND-CP stipulating the promulgation of model charters of one-member limited liability companies by the State. be the owner as follows:

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d) “Associated company” is an enterprise in which the Company holds shares and non-controlling capital contribution according to the provisions of law.

e) “Company voluntarily participating in association” is an enterprise that does not have shares or capital contribution from the Company but voluntarily becomes an associate member on the basis of close relationships in terms of economic, technological, and economic benefits. market and other business services with the Company, subject to the rights and obligations of the Company according to the association contract or agreement between that business and the Company.

i) “Non-dominant shares, non-controlling capital contributions of the Company” in other enterprises are shares or capital contributions of the Company that account for 50% or less of the enterprise’s charter capital.

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So:

Affiliate companies are established for the purpose of bringing efficiency in costs and capital of affiliated parties to carry out mutually beneficial business activities. Currently, business law does not have any concept of “affiliated company” but only concepts and regulations on corporations and economic groups.

However, according to legal documents regulating the promulgation of charters of single-member liability companies in which the State is the owner, there are regulations on affiliated companies. Accordingly, an affiliated company is an enterprise in which the companies hold shares and the capital contribution is not controlled according to the law.

Shares or non-dominant capital contributions in an affiliated company are where a company holds shares or capital contributions of 50% or less of the company’s total charter capital or total shares.

Therefore, an affiliated company is an association model in which one or more affiliated companies operate together through the form of holding shares or capital contribution of 50% or less for the purpose of linking business activities. business generates profits.

Outstanding characteristics of affiliated companies

An affiliated company is established between companies that do not have the right to dominate, hold and control each other in this association model. Holding shares and capital contributions without controlling rights helps parties not to interfere in each other’s activities but only has rights and obligations corresponding to the shares and capital contributions that the company owns.

Associate companies have the following characteristics:

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* First: An affiliated company is established by two or more entities with business status. The association is carried out through an association contract, cooperation contract, company charter, share contribution minutes, capital contribution or other forms agreed upon and signed by the parties in the association relationship. implement together.

* Second: The parties in the partnership relationship contribute assets to form the company’s charter capital , which can be in kind or in use value, but must ensure that no company holds more than 50% charter capital to hold dominant and controlling rights.

* Third: An affiliated company is established for the purpose of carrying out common business activities for a certain purpose through the agreement and consensus of the company members.

It can be said that an affiliated company is an agreement between companies to carry out common business activities, generate profits and divide profits according to the ownership ratio of each company after fulfilling its obligations. financial services. 

However, the biggest difference between an affiliated company and other business models is that the economic group or corporation is the name of the company, which is “affiliation”. When companies join together, they do not have the right to control capital or management like other models, but the parties are equal and independent of each other in terms of organization and operation when conducting business activities.

Affiliate companies are a popular business model but have not been specifically recognized in legal documents regarding related legal issues. Contact Newslax immediately at the business support hotline  for more specific and accurate advice on this issue.

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Danh mục: Business